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Dear ladies and gentlemen, welcome to the conference call of DFV AG Group. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Dr. Stefan Knoll, who will lead you through this conference, Please go ahead.
Ladies and gentlemen, on behalf of the Executive Board of Deutsche Familienversicherung, I would like to welcome you to the presentation of the Q1 '22 quarterly figures. We will do this again in the tried and tested manner. After my introductory remarks, my Executive Board colleague and Chief Financial Officer, Dr. Karsten Paetzmann, will present the Q1 results. After that, I will inform you about what we have planned for this year as a whole with an outlook on '22. Our goal for '22 is to regain and thus repeat the profitability of the company. Our 37% growth in premium income in Q1 will contribute to this significant cost savings and efficiency progress have been made or achieved, which has a positive impact on costs. Growth in the primary insurance business can also be achieved by continuously improving the insurance products offered. And I may add at this point that in supplementary dental insurance, an important insurance product for us, we became test winner for the seventh time in a row a few days ago. If we led this development 7 years ago, in the course of time, we have become the benchmark for an entire industry. Today, there are no less than 24 test winners all of which are modeled on us in their product design. Already in the first quarter, we succeeded in significantly improving the consolidated pretax results with a positive amount of EUR 1.4 million compared to the previous year and I repeat myself, we expect to reach the profit zone even if we continue to grow significantly. At this point, I would like to hand over to Dr. Paetzmann, who will present the details of the Q1 results in his proven manner.
Thank you, Stefan. Good afternoon, ladies and gentlemen. DFV has made successful progress in the first quarter of 2022, as shown on this slide. In the following, I will present to you the financial results of the first quarter of 2022. And give you insights into the progress made in the measures taken to increase profitability while maintaining innovation and growth. We have summarized DFV's key figures on this page. Total premium income increased by 37% compared to the same period of the previous year. This growth is slightly above the growth rate which we communicated to you for the year 2021. In this respect, we believe this is a solid continuation of growth -- of our growth course. In the following, I will also explain to you what this strong continued growth is due to. But let me first say about the net loss ratio in primary insurance, on the top right, and it was 66.4% in the first quarter. This is an increase compared to the same quarter of the previous year, which was, however, characterized by an extremely low allocation to the actuarial reserve in German terms, [Foreign Language] and the health insurance contracts calculated as life insurance [Foreign Language]. This was caused by a one-off due to a premium increase [Foreign Language], and we do not have a similar effect in 2022. Against this background, we are satisfied overall with this development. But we still see potential to improve further. I will discuss this in more detail below. We are particularly satisfied with the development of the OpEx, the operating expenses in primary insurance. For about a year now, we have been committed to reducing operating expenses. Now I can tell you that this OpEx item, if you exclude extraordinary one-off expenses in connection with the restructuring of the sales division, was 1% lower in the first quarter of 2022 than in the same period of the previous year. And this is despite the fact that the business volume increased by 37% as explained. Finally, the bottom right of this page shows the positive consolidated profit before tax, which amounts to EUR 1.4 million in the first quarter of 2022, a significant improvement compared to the same period of the previous year when a pretax consolidated loss of EUR 0.1 million was generated. This slide shows an extract from the consolidated IFRS statement of comprehensive income for the first quarter. In order to illustrate the effects of the new inwards reinsurance business in 2021, we have split the column for the first quarter of 2022 into 2 additional columns with the figures for inward reinsurance and primary insurance. In this way we can compare the primary insurance business for the first quarter of 2022 with the primary insurance business of the same period of the previous year in the Delta column on the far right. As a reminder, we commenced inwards reinsurance business on June 1, 2021. Accordingly, gross written premiums of the primary insurance business grew by 10% in the first quarter, while the net earned premiums, NEP, increased by 21%. Add to this volume growth of 21%, insurance benefits to customers increased disproportionately by 27%, resulting in the net claims ratio rising to 66.4%. Including the inwards reinsurance business, the total net loss ratio in the first quarter was 68.3%. The newly added inward reinsurance business is profitable, as shown in the corresponding column. It contributes just under EUR 200,000 to the consolidated profit before tax for the first quarter of 2022. The main earnings drivers are summarized on this page. First of all, the strong growth is an important driver for DFV to increasingly achieve economies of scale. As explained, this strong growth of 37% in the first quarter is partly due to the inwards reinsurance business and was achieved in primary insurance with comparatively low customer acquisition costs. I will discuss this in more detail below. The investment result of EUR 1.9 million is clearly above the previous year's value. We achieved this with great effort, although our investments are exposed to the significantly increased volatility on the capital markets in the wake of the Ukraine war and the effects of inflation and interest rates increases. I discussed this in detail at the annual press conference for the 2021 financial year on March 24. So I would like to refer actually to my statements in the corresponding presentation document here. As already explained, we consider the progress made in specific cost-cutting measures and the creation of an increased cost discipline to be great success, and they are already having an effect. Excluding the one-off extraordinary restructuring expenses OpEx in the first quarter of 2022 was even slightly below the figure for the same period of the previous year. However, if this one-off extraordinary expenses are included, OpEx grew by 9% year-on-year, with business growth of 21%, as explained. Now I would like to talk about the direct distribution cost in primary insurance depicted on the left. We have already reported to you in the past that in our business model, there are customer acquisition cost which are expressed as a multiple of a monthly premium of the corresponding contract. We have seen a significant reduction in these customer acquisition costs to an average of 11.0x monthly premiums in the first quarter compared to 14.2x monthly premiums in 2021 as a whole. It remains to be seen how sustainable we will be able to continue this reduction in direct sales cost, but a turnaround has begun here clearly. The right-hand side shows how average premium per contract has developed since the first quarter of 2020. It now amounts to EUR 252. This increase is the result of a change in the product mix as well premium adjustments and specific upselling initiatives in particular. We expect a further increase in this key figure from the current new business in the coming quarters. The realignment of sales activities is not only accompanied by a reduction in sales costs, as shown here on the left, but also by leveraging on further potential to achieve additional goals for DFV. This includes, in particular, strengthening innovation in various fields, which I would like to discuss in the following. Innovation is proving to be a driver for both growth and profitability for DFV. We want to further optimize our core processes and push the new product development in the direction of innovative products. This is a precisely where DFV's unique selling proposition in the market lies, which in combination with high implementation speed will continue to lead to growth and profitability. In the first quarter of 2022, we founded Hyrance [Foreign Language], as a joint venture with an external partner, a spin-off from the Technical University of Munich with the aim of intensifying our innovative strength in the claims processes. With the innovation power of Hyrance, we will further increase the automation rate and the claims handling of our core product in the course of 2022. Already this joint venture is fully consolidated and presented as part of DFV's consolidated financial statement according to IFRS 10. At the same time, we are also strengthening our traditional R&D by recruiting highly experienced experts with special expertise for DFV. We are very active in this area in the first quarter of 2022. With the aim of identifying and implementing new products and processes outside our current core business, DFV formed cross-division and cross-departmental working groups in the first quarter that focus on innovation in new products and process fields. Goals of such innovation labs is clear, ideas are to be brought forward and developed to market maturity away from the mainstream of traditional practices on the German insurance market. And I'm sure that Stefan Knoll will elaborate on these initiatives as he will speak to you in just a minute. Let me summarize. On this slide, I would firstly like to point out the pleasing growth of 37% in the first quarter, which is partly due to the newly added inwards reinsurance business. We generated a positive consolidated profit before tax of EUR 1.4 million. Investment management, again, made a substantial contribution to the improved result despite the still challenging situation on the capital markets. Measures to improve the claims and expense ratios are still underway. We expect significant effects for further profitability increases from the ongoing process automation and the sales reorganization. As explained, the first fruits have already been harvested. The distortions on the markets caused by COVID-19, the Ukraine war, as well as inflation and interest rate increases persist and remain challenging. However, from today's perspective we are confident that we will be able to achieve our profitability target for 2022. And with that I hand back to Stefan Knoll.
Yes. Thank you very much, Karsten, for your presentation before. I now turn to the outlook for '22, I would like to present balance our business model to you in a slightly different presentation. Because I, as a lawyer, find the classic profit and loss statement of the insurance company difficult to understand. I have introduced the so-called KP&L at Deutsche Familienversicherung, where the K stands for Knoll. On this page, you can see the premium income for the first quarter and the resulting net premiums after reinsurance. From this, we subtract our share of claims and benefits and thus arrive at a operational result I, which brings us to profit positive result. From this, we now subtract the total operating costs, for instance, personnel, technology, buildings and the likes. Leaving us here still with a positive operating result II. Now we subtract the distribution expenses, only now the company becomes slightly negative, whereby we also expect the balance result at the end of the year. This is in any case after we take into account the income from investments. So Deutsche Familienversicherung is in good health and will achieve a positive result at the end of the year. For various reasons, not least because I temporary took over the sales department, we started to give the company that bite again with Project 22, which seemed to me to have been lost due to the corona crisis with a lot of home office work and perhaps a partly less than optimal management. Today I can say that Project 22 has indeed released completely new energies in the company, and I'm very impressed indeed proud of my team, how they have excepted the challenges associated with it. We have set ourselves a total of 5 goals. The first goal is greatest growth in the industry. We remain, of course, for growth -- we will continue to grow at double-digit rates this year, and our growth will be well above the industry average. Yes, we will try to achieve the highest growth in the branch based on percentage. To do this, we will continue to focus on our main distribution channels. That is the direct business, which we will expand significant. More cross-selling and up-selling and thus more customer contact is the focus of this distribution channel. We intend to gradually transfer staff from the operations department to direct sales. Less operations due to an impact in process efficiency which I will come back to later, will, at the same time, lead to more direct sales, so that we only have to reallocate the existing staff. Our Deutsche Familienversicherung combined cover introduced last year in selling well, 5 contracts in 1 is having an effect. However, we are paying particular attention to significantly reducing distribution costs as they developed last year. After we clearly broke the 12x monthly payment rule, last year distribution costs amounting to 12x the monthly premium, we are now at 11.9, even including personnel and material costs. So it will not be a question of acquiring new business at any price but only new business at a reasonable cost. Where we have become significantly better is also in use of social networks. We joined TikTok in February 22 and managed to attract 400,000 viewers in just a few weeks that will also have a long-term impact on new business. We intend to realize the best customer service in the branch. To evaluate the best service, we have 3 well-known evaluation tools at our disposal. They are Google, Trustpilot and the so-called Net Promoter Score. We are already rated on Google and Trustpilot and our rating according to the Net Promoter Score is now pending in the short term. Here, you can see where we have come from, where we are and where we want to go. In terms of Net Promoter Score, we expect it to be well above the industry. The industry rating is currently 18, we expect a minimum of 3x the rating score here. The highest automation rate in the industry is our third goal. We are already well above the industry with automation rate in respect of health insurance and want to increase this significantly again by end of the year. Our goal will be to reach 80% automatization. The newly founded Hyrance, again, will provide us with essential support. This is a joint venture between STTech and Deutsche Familienversicherung. From our side the operational know-how and the typical requirement of benefits and claims settlements will be contributed. At STTech, under the leadership of Professor Dr. Knoll will provide dedicated know-how and in process automatization and in the field of artificial intelligence. Professor Dr. Alois Knoll is neither related to me nor related by marriage despite the similarity in our surnames, and the fact that we both came from Augsburg. My Board colleague, Marcus Wollny, established this contact and very quickly realized that we have clear potential for improvement in a collaboration, especially since Professor Dr. Alois Knoll is considered the German luminary in the aforementioned field. Best product in the industry. I already said it, at the beginning, we need good test results because we do not prefer personal but distance selling. Around 180 seals in the last 15 years show the company's performance and innovative strength. About them were 12 tests -- among them were 12 test victories at Stiftung Warentest. These are especially valuable to us because Stiftung Warentest is particularly recognized testing Institute. New insurance products in the areas of accident, animal, property and also life are what we are aiming for in '22. Although the realization of the life insurance product will be postponed by 6 months due to technical difficult on the part of our partner and can thus only be realized in the first quarter '23. As already mentioned, we have become test winner in supplementary dental insurance for the seventh time in a row. Our market leadership in terms of product design is undisputed here. In the other insurance lines, we have now introduced pet surgery insurance, we will launch our own campaign with our accident insurance with situational coverage. I would like to be a bit more verbal about that, at least. We are the only company whose technology allows the customer to increase or reduce the insurance cover situationally. This saves cost and still allows us to buy appropriate for the increased insurance cover in more critical situations. Best online communication around our objectives. We already have the best chatbot for today. 98% of our customers use the portal and the best app in the industry testifies to our online superiority. Let me illustrate. This was an example -- a numerical example. This was a simple numerical example. We have taken a comparatively large number of calls in recent years because we have not asked ourselves whether these calls are actually necessary. Within the frame work of Project 22, we have completely changed and significantly improved customer service in some cases. We looked at letters that were in comprehensively civil, which is why they were calls. We have re-sharpened our online communication and have managed to reduce the volume, of course, by 50% since the introduction of these measures, particularly since February this year. The capacities are -- that are freed up as a result, are now being put into direct sales, so that we can make more sales as a result of improved service. And I think this is the end. I repeat again, greatest growth, best customer service, highest automatization, best insurance products, best online communication in the industry. These are our goals and we will be measured against them. Deutsche Familienversicherung continues to be the innovation pacesetter in the industry, and I am proud of that. Thank you for your interest and I'm available to answer any questions you may have. And otherwise I wish the best regards until the Annual General Meeting, if you are attending, which will take place on 25th of May, '22, so that means next week on Wednesday. Thank you very much.
And the first question comes from Christian Salis, Hauck & Aufhaeuser.
Christian Salis speaking from Hauck & Aufhaeuser. I've got a couple of questions, please. So first of all, on the revenue per contract on Slide 8, could you maybe talk a little bit more about the reasons why this is increasing over the years to EUR 252? And what could we expect? Where can this go to in the coming year or in the coming 2 years? Yes, I'll take my questions one by one, please.
We are just wondering who is responsible for the answer. I would like to give you answer in respect of my responsibility for sales. From my perspective, there are 2 reasons. First of all, sell more pet insurance and pet insurance is an expensive one. And second, we started with this combination product, which is the successor of our first 5 pieces combination product. We get much more money out of the new product with better insurance. And these are 2 reasons from my perspective. Maybe Karsten has another reason from the financial perspective.
Yes. 2 further reasons, good afternoon. One is price increases which have been able to apply in the first quarter compared to last year and the previous year. And another one is upselling initiatives, which we have started in the market and always do. And I can also tell you additionally, that based on the new business flow coming in, this had an average premium of EUR 282 per contract in the first 3 week quarters. And therefore I expect that this KPI will rise further in the future.
Okay. Second question would be also again on the top line development. Do you expect any positive effects from the reopening and increasing travel activity on the travel insurance business?
Well, hopefully, my competitors do not hear everything what I want to point out here. We will start a campaign of a combination of accident and travel insurance. And we expect that travel insurance restart in respect of the sales rates in minimum in mid of this year. So yes, we expect more business out of this product.
Okay. And then on the income on capital investments. Could you please talk about the effect of the rising interest rates on this figure?
Obviously, and as stated, the capital markets are challenging right now. And part of that is the increased volatility due to the Ukraine war and also part of it, and maybe even more challenging is the increase in interest rate. And we have, if you look at the first quarter, we do see unrealized losses in the investment portfolio, which are set aside in equity directly in the OCI. We definitely have these. That's correct. However, the investment income has been not only stable, but has increased compared to the previous year, as explained before. And that is also due to a solid asset allocation and additional derisking initiatives, which we have taken to stabilize our income. And therefore, I can confirm that interest rate increases have an impact. Even though I would say for us being a quickly growing insurer with more capital flowing in and more capital to be invested in the coming months and years, this provides an opportunity, because we can lock in the increased interest rates. And therefore, I even think that we have -- well, I'm careful with the word competitive advantage, but due to our growth rate this provides an opportunity that we can lock in the increased interest rate.
And how much was the unrealized loss in the investment portfolio in Q1?
That was above EUR 6 million.
Okay. And then the final question is on the guidance. You have achieved EUR 1.5 million EBIT in Q1, but you're still guiding for only 0 to EUR 1 million pretax profit in 2022, right? So this basically implies that you've become loss-making again in the coming quarters. So why is that?
Well, we are being careful. As Stefan has confirmed, we are being careful in relation to the Ukraine war. We do not know what to expect and how long this will take. And therefore this is a solid -- maybe a conservative view. We are doing…
Or is this also due to the unrealized losses that -- that will have at some point have a negative effect on the EBIT?
No. No, no, I disagree, because they will remain unrealized until the end of the year. And because we just need stable investment income and its market value declines was only due to interest increases, we just hold until maturity. We don't plan to realize losses in the investment portfolio.
Yes. And I've seen you have already decreased the share of equities quite substantially over the last year, right? So that should be paying off now, I guess?
That's correct.
[Operator Instructions] And the next question comes from Rene Locher, KBW.
So on Slide 6, first of all, it looks like you have changed your reinsurance policy because your retention rate increase from 52% to 65%. So I was just wondering, is this quarterly impact or do you intend to keep more business on your own balance sheet? Then the second question is on the income from capital investment. I don't know if you can give me the split between current income from investment and profits from disposals? So that's on the number. Now little bit more like a strategic question. The first one is you highlighted the repositioning of sales. And I was just checking on that slide you showed at the Investor Day -- Capital Markets Day, there you had sales targets online, including direct TV of 69%, broker corporation was 26%, direct insurance was just 5%. So I was just wondering when you are talking repositioning of sales should we expect for example more business volume coming out of the direct channel? And the last question is, could you comment a bit on Austria market you entered last year? And could you also comment a little bit on your cooperation like with resource like Lidl and Haspa?
Yes. To begin with your first question related to the retention rate of DFV and your question is whether this has increased or will strategically increase. Well in general, our intention is to slightly increase the retention rate as we grow bigger. However, what you see in the first quarter is that we have introduced inwards reinsurance to the business, which is not -- retroceded to reinsurers. And therefore, the overall retention rate is quite impacted by this new business mix, if I may say so. But apart from that, we only slightly, from year-to-year evaluate whether we increase the retention rate of the whole company. The second question was to which degree the investment income of the first quarter 2022 related to current income, and I understand in contrast to extraordinary income. And my offer to you is that I will give you a precise answer after this call. I will send an e-mail, provide these figures. But what I can tell you is that we have more than stabilized the current income and the current investment income to provide for the regulatory requirements which are there for our long-term care business. So what I can say is that the current income is fine. It's on-track as we have repositioned our asset allocation in 2021. This effectively works. And that is why -- that is also why we have unrealized losses in the portfolio because we -- simply saying we just keep -- we hold the portfolio, we do not realize losses, and therefore, we continue to receive current income out of investments. And for the third bundle -- for the third question which is a bundle of strategic questions, I hand over to Stefan.
Okay, Rene, a lot of questions, and I'm not happy to answer every question, by the way. Because not everything -- I can answer would be something for foreign ears. But let's start, so the sales mix you asked for, roundabout 80% of our new business and of our new business targets is more or less online. What means more or less online? It is direct sales, it is classic online and it is direct response TV. We expect this year 50% out of online sales, something between 12% and 15% from direct sales and something between 30% and 40% from direct response TV. This is the mix of our sales channels. And then there are 20% less of and this 20% is the sales channels of intermediaries and cooperation. Cooperation is a little bit tricky. It can happen that you work for years for a cooperation partner and suddenly you can harvest what you have invested. And so there are a lot of new or potential new business partners out of the cooperation sales channel. But I think you understand this, I do not want to talk about names, but I'm pretty optimistic that '22 is also from this respect and will become an interesting year. Now the last question. What about Austria? Austria is not the main lag we -- of our sales activities in order to be honest. First of all we wanted to fulfill a promise. Second, we wanted to prove that our IT system can work also with Austrian customers. So now we proved this and we are in Austria and I know that the results are -- there are results, okay full stop. So the interesting thing is now that we have -- that we plan to build up a new sales activity starting in Austria, and we must think about Swiss, about Italy and France. But do me a favor, don't write in the next information paper that Deutsche Familienversicherung will go to Italy, France, Switzerland and so on. But it is logical that we cannot step into Austria and do some business, and that is it. Austria is the initiatives becoming international. And now we have to make a decision, what do we want to do with the result of Austria? And for me, it is logical that the next countries are neighbor countries of Austria, maybe Italy, Switzerland or France or something like that. We work on this very hard, but I do not want to talk more about this. And again, please give no information to the public that we are -- yes, that we will start this initiative in the next days or something like that. We work hard on this and I expect a good news at the end of this year.
Promise you.
Normally I fulfill my promises, as you know.
Yes. That's very helpful. Just on the portfolio, I was just checking on -- just a confirmation as far as I can see, you have classified your bonds as available for sales, so the EUR 6 million loss was booked directly against the OCI in shareholders' equity. And again, as long as you are not selling the bonds and just cashing in the coupon, this is just accounting?
That's correct. Our -- all our investments in the master funds are classified as available for sale after -- we still account for according to IAS 39 and therefore market losses which are above EUR 6 million are directly subtracted from equity and not we call it through P&L, correct.
[Operator Instructions] And we haven't received further questions at this point. I will hand back to the speakers.
I say thank you very much for the organization. And thank you very much for the interest. We will see you next time, if you join the Annual General Meeting on the 25th of May. And so stay healthy. And sure [Foreign Language].
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.